Ryanair warns of summer price war

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Ryanair, Europe's biggest budget carrier, has admitted that falling passenger demand will force large fare cuts.

Ryanair, which is set to break through the 50 million passengers a year barrier - 50 per cent more than the whole of British Airways' global operation - gave its most downbeat market assessment in years, saying average fares will have to drop if it is to stimulate demand and keep its profits growing.

"Forward bookings and yields [revenue per passenger] continue to be soft," said chief executive Michael O'Leary.

Yields - the aviation industry's indicator of underlying like-for-like-sales - could fall by up to 5 per cent he said, adding: "As a result, we will expect profit growth over the coming year to be more modest and to rise by approximately 5 per cent."

Despite reporting record after-tax profits up 33 per cent at 401.4 million (£272 million) for the year to 31 March, O'Leary is warning Ryanair could go through the whole of next winter in the red.

"We believe the company and our shareholders should remain cautious and conservative," he said.

The dampening demand comes as Ryanair is committed to rising capacity, taking delivery of record numbers of new Boeing aircraft, with 30 737s coming in this year.

"If market conditions continue to be soft, as is presently the case, then this ambitious traffic growth [forecast to be 22 per cent as the airline adds new routes throughout Europe] can only be delivered by discounting fares and yields," he said.

O'Leary believes price-sensitive passengers at the bottom end of the market have been put off flying. Last year's booming demand allowed Ryanair to increase average fares by 7 per cent. Fares have been kept higher so far this year by Gordon Brown's doubling of air passenger duty and by rising charges at Ryanair's London base of Stansted.

He dismissed claims that environmental worries are holding back travellers. "To be brutally honest, if the fare is low enough it will be enough to assuage the sensibilities of the most ardent environmentalist," he said.